Ethics in Accounting

Learning Outcomes

  • Describe the role of ethics in accounting
A greek statue holding a scale.

The distinction between morality and ethics is muddy at best. Some people argue that there is a difference and speak of morality as something personal but view ethics as having wider social implications. However, for our purposes, ethics and morality will be used as equivalent terms.

People often speak about the ethics or morality of individuals, and the discussion of the morality or ethics of businesses has become commonplace. There are clearly differences in the kind of moral responsibility that we can fairly ascribe to businesses and accountants; we tend to see individuals as having a soul, or at least a conscience, but there is no general agreement that businesses have either. Still, our ordinary use of language does point to something significant: if we say that some businesses are “evil” and others are “corrupt,” then we make moral judgments about the quality of actions undertaken by the business. For example, if we conclude that WorldCom or Enron acted “unethically” in certain respects, then we are making judgments that their collective actions are morally deficient.

Codes of Ethics

Several accounting organizations have codes of ethics governing the behavior of their members. For instance, both the American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants have formulated such codes. It is important to maintain ethical behavior both personally and professionally in business; therefore, many business firms have also developed codes of ethics for their employees to follow.

AICPA’s Code of Professional Conduct

Let’s take a brief look at the principles in the AICPA’s code:[1]

  1. Responsibilities principle. In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.
  2. The public interest principle. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.
  3. Integrity principle. To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.
  4. Objectivity and independence principle. A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.
  5. Due care principle. A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.
  6. Scope and nature of services principle. A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

To learn more about these principles, visit the AICPA’s Online Code of Professional Conduct.

While ethical behavior is much more than simply following a list of rules, these codes can act as a reference point for accountants who find themselves unsure of what to do.

Why Should a Business or Accountant Be Ethical?

The usual answer is that good ethics is good business. In the long run, businesses that pay attention to ethics do better; they are viewed more favorably by customers. Despite strong anecdotal evidence, this is a difficult claim to measure quantifiably, as “the long run” is an indistinct period of time, and there are as yet no generally accepted criteria by which ethical excellence can be measured. Yet get-rich-quick opportunities can tempt many businesses and employees alike. Almost any day you can find newspaper headlines that reveal public officials and business leaders who did not do the right thing and paid the price.

An accountant’s most valuable asset is an honest reputation, built by following industry standards and making ethical decisions. When accountants do take the low road, they suffer the consequences. They sometimes find their names mentioned in The Wall Street Journal and on news programs in an unfavorable light, and former friends and colleagues may no longer want to use or refer their services. Some of these individuals are even removed from the profession.

Practice Question

  1. AICPA. “AICPA Code of Professional Conduct.” AICPA. Accessed October 1, 2020.